In the background, you can see a number of blimps with "Fight" written on the side of them. Balloon Birds appear in this stage, and so does the Floppy Fish. There is no boss in this level, since the level number is 3. There are various islands across the stage. Most of the stage is above water, so most of the enemies are birds. On islands, there are palm trees and occasionally a person. At the end of the level, you enter the mouth of the Whale.
This location may be the setting for the original Balloon Fight, or at least based on it, due to the islands, Balloon Birds, and the Floppy Fish appearing.
It is also possible that this is Trip-Sky, since there are mountains somewhat nearby (as seen on Balloon Fight GB's map) and the fact that there are islands scattered around, as well as the appearance of Sparks, though this is far less likely, as Balloon Birds did not appear there.